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24th April 2014

Singapore Economy

S'pore
inflation inches up after 4-year low in Feb

Source: Straits Times

Singapore's
inflation rate crept up last month to 1.2 per cent after sinking to a four-year
low of just 0.4 per cent in February. Cars were slightly cheaper in March
compared with the same month last year, but food, education and health-care
costs kept inching up. The cost of private road transport fell by 2.8 per cent,
after declining 7.1 per cent in February.

SINGAPORE — A persistently tight labour market continued to drive
inflation in Singapore last month, reflecting the pressure on firms to pass
rising wage costs to consumers, particularly in service-centric industries,
such as hospitality, healthcare as well as food and beverage.

Analysts said the trend is likely to persist throughout the year
as staffing costs take up a larger chunk of business expenses.

The latest Consumer Price Index (CPI) shows that core inflation —
which excludes accommodation and private road transport costs — rose to 2 per
cent last month after February’s 1.6 per cent, “mainly on account of higher
contributions from food prices and services costs”, said the Monetary Authority
of Singapore (MAS) in a joint statement with the Ministry of Trade and Industry
yesterday.

Food and recreation costs — which account for 38 per cent of the
CPI basket — rose 2.9 per cent and 2.5 per cent, respectively, up from 2.3 per
cent and 1.5 per cent in February. These were lifted partly by price gains of
prepared meals at 2.8 per cent and household services at 5.2 per cent.
Healthcare costs grew 3.4 per cent, while tuition and other fees rose 3.4 per
cent.

Consumer prices in these categories are likely to continue rising
throughout the rest of the year, said UOB economist Francis Tan.

“We’ve seen labour becoming a bigger part of business costs for
services-producing industries, such as hospitality, healthcare, food and
beverage and, to some extent, education,” he said. “With an improving economy
and tight labour market, they will adjust to higher wage growth and pass the
costs to consumers. The pace of increase will not be violent, but don’t expect
any declines this year.”

Credit Suisse analyst Michael Wan said: “My estimate puts wage
growth at 5 per cent this year and 6 per cent next, up from 2013’s 4 per cent.
Against this backdrop, it is likely the core inflation rate will hit 2.5 per
cent in the second half of this year.”

Last week, the MAS forecast that annual core inflation could come
in at 2 to 3 per cent this year, cautioning that domestic cost pressures would
remain a key driver of inflation even while imported price pressures remain
moderate.

Yesterday, the central bank highlighted the same outlook, but
reiterated that there should be decreased cost pressures from private road
transport and accommodation.

“For the whole year, car prices are likely to add negligibly to
inflation. Given the large supply of newly completed housing units, imputed
rentals on owner-occupied accommodation are expected to stabilise in 2014.
All-items inflation is projected to come in at 1.5 to 2.5 per cent in 2014,”
said the MAS, revising downwards its original forecast of 2 to 3 per cent.

The CPI data also shows overall housing inflation to be 1.2 per
cent last month, down from February’s 1.5 per cent. This trend is likely to
continue, as about 24,000 public and 20,000 private homes, expected to be
completed later this year, come into the market.

Singapore has kept its
status as the world's second-most networked economy in this year's Networked
Readiness Index (NRI), hot on the heels of Finland, which is again in the No 1
spot. nAs in previous years, the top 10 spots were dominated by northern
European economies, the Asian Tigers and some advanced Western economies.

A LOSS-MAKING subsidiary of CCM Group that is being disposed of
has received a notice of termination on a condominium in Balestier it was
constructing.

The contract was terminated "on the grounds of alleged
breaches of contract", the Catalist-listed construction firm said
yesterday. It added that it was seeking legal advice and evaluating the
financial impact of this development.

The contract, secured in August 2011, was worth $32.3 million. It
was awarded by developer Orion-One Residential to CCM subsidiary CCM
Industrial. The latter was to build a 23-storey residential flat with a
five-storey car park, swimming pool, communal facilities and a sky terrace, at
6 Jalan Ampas.

The freehold project was marketed under the name The
Viridian@Bales-tier. Construction was scheduled to start in October 2011 and
was originally slated to be completed in October last year. According to a
marketing website, the project was expected to be completed in the middle of
this year, with prices from $785,000.

[SINGAPORE] A larger proportion of private apartments and condos
bought by those with HDB addresses in the first quarter were smaller units of
up to 800 square feet, compared to buyers with private addresses, shows a
caveats analysis by DTZ.

Buyers with HDB addresses acquired a total of 892 non-landed
private homes in the first quarter of this year. Of these, 453 units or 51 per
cent were for units of up to 800 sq ft, up from a 44 per cent share for the
whole of last year. The proportion has been climbing steadily in recent years,
from 25 per cent in 2010 to 32 per cent in 2011 and 36 per cent in 2012.

DTZ's South-east Asia chief operating officer Ong Choon Fah said:
"Those with HDB addresses could be buying a higher proportion of smaller
units as the investment sum is much smaller; it comes down to affordability and
managing risks. Morever, if they buy from developers, they enjoy progressive
payment terms i.e. they pay for the purchase price according to the phases of
the project's physical completion. If they are buying for investment, they are
unlikely to want to sell until after the project has been completed - as
typically, you see a price spike just before a project receives Temporary
Occupation Permit (TOP). Every little bit helps."

In contrast, only about 29 per cent of the 1,014 non-landed
private homes bought by those with private addresses in Q1 this year were for
units up to 800 sq ft. The bulk of their purchases, 59 per cent, involved units
larger than 1,000 sq ft, up from a 54 per cent share for the whole of last
year.

TAKEOVER/privatisation fever has gripped the local market in
recent days as a flurry of these exercises have been announced. UIC kicked
things off with its offer for Singapore Land, CapitaLand then grabbed the
headlines with its plan to buy out all of CapitaMalls Asia (CMA), and a private
consortium headed by Hotel Properties' boss Ong Beng Seng tabled a takeover of
HPL that could eventually lead to HPL being delisted.

This, in turn, has sparked off a search for the next big privatisation
play and driven the local market higher, as if this was something to be
celebrated and trumpeted.

Truth be told, it isn't.

On the contrary, it is a damning indictment of a market aspiring
to be a major gateway for global finance that good quality companies are being
persistently mispriced by a supposedly efficient market. It isn't really
efficient by any stretch, but let's pretend for argument's sake that it is. But
once the delistings are done and dusted, a void will appear that will take
years to fill.

MAPLETREE Commercial Trust (MCT) yesterday reported a distribution
per unit (DPU) of 1.953 cents for its fourth quarter ended March 31, 2014, up
12.4 per cent from 1.737 cents a year ago.

This will be paid on June 5, 2014.

It brings the Reit's full-year DPU to 7.372 cents, an increase of
13.6 per cent from a year ago and 15.9 per cent against its forecast in its
listing prospectus.

For the quarter, gross revenue rose 12.9 per cent to $68.6
million, driven by positive contributions from VivoCity, PSA Building and
full-year contributions from Mapletree Anson, following its acquisition last
February.

FRASERS Commercial Trust (FCOT) posted a distribution per unit
(DPU) of 2.05 cents for its second quarter ended March 31, 2014, a 3 per cent
increase from 1.99 cents a year earlier.

Distribution to unitholders rose 5.6 per cent year on year to
$13.789 million, despite a dip in net property income.

DPU was boosted by conversion of 0.8 million Series A Convertible
Perpetual Preferred Units (CPPU) in Q2 FY2014, leading to savings in CPPU
distributions, said Frasers Centrepoint Asset Management (Commercial), FCOT's
manager.

Income available for distribution to unitholders and CPPU holders
was 10.3 per cent lower at $13.792 million.

Frasers
Centrepoint Trust (FCT) reported its Q2 FY2014 scorecard on Tuesday evening.
Net property income (NPI) and distributable income grew by 2.0 per cent and 1.4
per cent y-o-y to $29.3 million and $23.8 million respectively.

CAPITAMALL Trust (CMT) achieved a 4.5 per cent year-on-year
increase in distributable income for the first quarter ended March 31 to $89.1
million on the back of high occupancies in its shopping malls.

This translates to a distribution per unit (DPU) of 2.57 cents and
an annualised distribution yield of 5.24 per cent based on CMT's closing price
on April 22.

Gross revenue grew 5.8 per cent year-on-year to $164.7 million,
thanks to higher occupancy at Plaza Singapura and The Atrium@Orchard and the
completion of Phase 1 asset enhancement initiatives at IMM Building.

Net property income rose 5.3 per cent to $114.3 million, aided by
contribution from Westgate, which commenced operations in December. Westgate
now has a committed occupancy of 92 per cent.

Announced by
Prime Minister Lee Hsien Loong in his National Day Rally speech in August last
year, Project Jewel at Changi Airport will become another iconic international
attraction when it opens in 2018. It will cement Singapore’s position as a top
tourist destination and also better serve domestic consumers.

Global
Logistic Properties (GLP) has signed five new lease agreements totalling
155,000 square metres in China. The leases, which are with existing third-party
logistics provider customers, are spread across four GLP Parks in Shanghai and
Guangzhou.

[SYDNEY] Australia's Australand Property Group said yesterday it
had rejected a A$1.95 billion (S$2.27 billion) proposal from bigger rival
Stockland Group to increase its stake, saying the deal was undervalued.

Australand has been seen as a takeover target since Singapore's
CapitaLand Ltd said it wanted to sell what was a 59 per cent stake in early
2013, while Stockland has been seen as a likely buyer of some or all of the
business.

Stockland bought a 19.9 per cent stake in Australand in March
after CapitaLand sold its remaining 39.1 per cent stake in Australand for about
A$849 million.

The Australand board said the proposal, which offered 1.111
Stockland shares for every Australand share, was not compelling and had not
provided "sufficient consideration to Australand security holders in the
context of a change of control", the company said in a statement.

ECO World Development Group Bhd climbed nearly 3 per cent
yesterday on expectation that developer Liew Kee Sin would soon be bringing his
expertise to the company after he disposed of all his shares in SP Setia.

Credited with growing SP Setia into the largest property developer
in Malaysia by sales, Mr Liew sold 67.79 million shares representing 2.76 per
cent of the company in an off-market trade, according to a report in Starbiz,
the business section of Malaysian daily The Star.

The shares, sold at RM3.95 apiece, are believed to have been
bought by Permodalan Nasional Bhd (PNB), under a put option agreement with him,
to acquire his stake in three tranches.

PNB had triggered a mandatory general offer (MGO) in 2011 when it
upped its stake in the company above 33 per cent, catching Mr Liew, its
president and chief executive, by surprise. To induce him to stay longer, the
country's largest asset manager had agreed in January 2012 to buy his 8-plus
per cent stake in SP Setia at the MGO price of RM3.95, albeit in three tranches
over three years.

[DUBAI] Kuwait-based property developer Al Mazaya Holding Co is
reversing its strategy of shrinking activities in Dubai, and may raise money
from the sale of Islamic bonds after real estate prices soared.

The company's previous management said in June 2012 that it would
reduce its investments in Dubai. At the end of 2013, the value of the company's
assets in the United Arab Emirates had fallen to 32 per cent of the total, from
35 per cent a year earlier, according to the company's financial statements.

"A few years ago, the view was different. Now, I believe
there's great potential in Dubai," Ibrahim Al Saqabi, Al Mazaya's chief
executive officer, said this week in an interview here. "We'll launch
several new projects this year, including some in Dubai."

Property prices in Dubai rose as much as 43 per cent last year,
according to Cluttons LLC data on Bloomberg, as the economy rebounded from a
credit crunch. The surge enabled Nakheel PJSC to start repaying debt ahead of
schedule, and helped Damac Real Estate Development Ltd sell a US$650 million
sukuk earlier this month.

[SAN FRANCISCO] LinkedIn Corp agreed to fully lease a San
Francisco office tower that's being built by Tishman Speyer Properties in the
city's South of Market area, two people with knowledge of the deal said.

The professional social-networking company will occupy the
building at 222 Second St on a lease that includes about 450,000 square feet or
42,000 square metres of office space, said the people, who asked not to be
identified because the agreement is private.

The 26-storey building will also have more than 2,200 square feet
of retail space, according to the property website.

Calls seeking comment after normal business hours to Matt
Sonefeldt, head of investor relations for Mountain View, California-based
LinkedIn, and Suzanne Halpin, a spokeswoman for New York-based Tishman Speyer,
weren't immediately returned.

-From San Francisco, US

LinkedIn to Fully Lease Tishman’s San
Francisco Tower

Source: Bloomberg / Tech

LinkedIn Corp. (LNKD) agreed to fully lease a San Francisco office tower that’s being built by Tishman Speyer Properties LP in the South of Market area as growing technology firms boost rents citywide.

The professional social-networking company will occupy the building at 222 Second St. on a lease that includes 450,000 square feet (42,000 square meters) of offices, San Francisco Mayor Edwin Lee said in a statement today. The tower can accommodate 2,500 workers and has 8,500 square feet of public space including retail, according to the statement.

“LinkedIn’s decision to grow in the innovation capital of the world demonstrates, once again, investor confidence in our city,” Lee said.

LinkedIn’s agreement is the latest tower deal by a technology firm in the city following disclosure of high-rise leases by Microsoft Corp. and Salesforce.com Inc. San Francisco rents rose 6.8 percent in the first quarter from a year earlier to $57.21 a square foot on average, and vacancies were little changed at 11.3 percent, Jones Lang LaSalle Inc. said. Rents have jumped 70 percent since 2010, according to the brokerage.

“With this new building, LinkedIn is committed to expanding in San Francisco, giving us even more access to some of the most talented professionals in the world across a variety of functions, including technology, sales and operations,” Jim Morgensen, the company’s head of workplace, said in the statement.

The lease was reported last week by Bisnow.com, a real estate news website.

Sustainable Design

The Tishman Speyer tower, under way at Second and Howard streets, is scheduled to be completed in 2016, according to the New York-based developer. The high-rise is being built to attain the second-highest rank for sustainable design, measured by the U.S. Green Building Council.

LinkedIn has more than tripled since its 2011 initial public offering, with the shares little changed in the past year. The company is searching for office space in Dublin as it seeks to add mobile features and make acquisitions outside the U.S., two people with knowledge of the matter said on April 14.

Clash pits home rent service against those who
say its business is driving up rents

Source: Business Times / Property

[NEW YORK] Airbnb Inc, an alternative to hotels in thousands of
cities, challenged a New York state demand for information on whether the
online, home rental service violates housing and occupancy tax laws.

An Albany state judge heard arguments on Tuesday on the company's
bid to quash New York Attorney General Eric Schneiderman's request for data
about people who rent out their homes, a move which Airbnb described as a
"government-sponsored fishing expedition". The court clash pits the
San Francisco-based technology business that supporters say should be welcomed
as a boost for local tourism against housing advocates who argue the service is
driving up rents and turning affordable accommodation into illegal hotels.

"Today, the attorney general made it clear that he remains
determined to comb through the personal information of thousands of regular New
Yorkers just trying to make ends meet," David Hantman, head of global
public policy for Airbnb, said in a statement.

The judge didn't issue a decision on Tuesday, according to the
attorney general's office.

[TOKYO] HIS Co's Dutch-themed amusement park along Japan's
south-western coast is considering buying a deserted offshore island in an
expansion to boost its appeal as a possible site for a casino resort.

"We are planning to buy new land to offer more games at the
Huis Ten Bosch theme park," Hideo Sawada, chairman of the Tokyo-based
travel agency and park operator, said on April 18.

"There are a lot of
deserted islands nearby."

He said that at least 100 billion yen (S$1.23 billion) is needed
to fund a gambling resort at the park.

Huis Ten Bosch and sites across Japan are preparing to compete for
possible gambling resort developments before the nation ends a ban on casinos,
with preliminary legislation expected to pass in coming months. Global
operators from Las Vegas Sands to Melco Crown Entertainment have said that they
are prepared to invest billions of dollars should they win permits for casinos
in the world's third-largest economy.

[NEW YORK] In hotels these days, it is the haves versus the
have-nots.

At some dining rooms, guests have to produce their room keys to
eat at the free breakfast buffet. No eggs and muffins for those guests from
other hotels, even if - as is increasingly likely in major cities - everyone
slept under the same roof.

At Chicago's so-called triplex - where three hotel companies share
space on a city block - Starwood's Aloft guests work out in a small gym within
eyesight of a much larger one shared by Marriott and Hyatt hotel guests.

"Starwood had an issue; they didn't want their guests
intermingling with the other guests in the fitness area," said Deno
Yiankes, the head of investments and development for White Lodging, which
codeveloped and operates the Chicago triplex. "Each brand has its own
little hot button. Marriott and Hyatt said it wasn't a big deal, so they shared
and got a bigger fitness centre."

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said he’s open to the possibility of his company eventually becoming more involved in housing finance once U.S. lawmakers resolve the future of Fannie Mae (FNMA) and Freddie Mac.

“I don’t see any role for Berkshire in Fannie or Freddie,” Buffett, 83, said yesterday in an interview with Bloomberg Television’s Betty Liu. “There could be some, in some housing arrangement that gets worked out in the future.”

President Barack Obama and a bipartisan group of senators are seeking to wind down Fannie Mae and Freddie Mac while investors including Bruce Berkowitz’s Fairholme Capital Management are betting on the companies and pushing the U.S. to return them to private ownership. Fannie Mae and Freddie Mac keep money flowing in the housing market by buying mortgages from lenders and packaging them into securities.

Buffett said that the government could act as an insurer of last resort in a new system that involves private companies taking initial losses, which is the structure that has been proposed in the Senate.

“I think government has to play a part in housing,” Buffett said. “The 30-year fixed-rate mortgage is very good for the American public and I think that you will need government participation in some way to bring the costs down.”

The housing-finance companies, which were taken over by the U.S. in 2008, received $187.5 billion in taxpayer aid and paid dividends of 10 percent on the government’s stake until Treasury amended the terms of the bailout and began taking all of their profits instead.

Buffett’s Warning

Berkshire owned stakes in both firms before the housing collapse. Buffett has said he made a major investment in Freddie Mac in 1988. At the end of 1999, Omaha, Nebraska-based Berkshire owned an 8.6 percent common equity stake with a market value of $2.8 billion. Buffett sold most of the holding the next year, and also reduced a smaller position in Fannie Mae, according to his 2000 annual report. He later said that he was wary of goals the companies set to boost results.

“Any time a large financial institution starts promising regular earnings increases, you’re going to have trouble,” Buffett said in a 2010 interview with the Financial Crisis Inquiry Commission.

Berkadia Commercial Mortgage LLC, a venture between Buffett’s company and Leucadia National Corp., originates apartment loans backed by Fannie Mae and Freddie Mac. Berkshire also makes loans to customers who buy manufactured homes.

Paint, Carpet

Buffett’s company has units that benefit from an improving real estate market, including Clayton, which builds manufactured houses; paint-maker Benjamin Moore; and carpet-manufacturer Shaw Industries. The company has also been expanding its home-brokerage franchise under the Berkshire Hathaway HomeServices brand.

In the interview with Liu, Buffett dismissed speculation that he’s interested in taking a stake in Major League Baseball’s Chicago Cubs. He said he hadn’t talked with the Ricketts family, which owns the team, about a deal.

“There’s no reason to do it,” Buffett said. “I would get no big ego kick out of it, or anything of the sort.”

Lamar Advertising Co. (LAMR) joined CBS Outdoor Americas Inc. (CBSO) in obtaining a ruling from the Internal Revenue Service that clears the way for its conversion to a real estate investment trust.

Lamar’s income from renting space on outdoor displays qualifies as rent from real property, a necessity for REIT status, the Baton Rouge, Louisiana-based company said today in a statement. New York-based CBS Corp. (CBS) said last week that its outdoor-advertising unit received a similarly favorable ruling.

The IRS has been looking more closely at companies wanting to become REITs after an increasing number of nontraditional property businesses sought approval for the tax status. Companies including data-center owner Equinix Inc. and Iron Mountain Inc. (IRM), which rents storage space and maintains paper and electronic records, have been waiting for almost a year for IRS decisions on the fate of their REIT conversions.

“It’s clearly a positive sign that decisions are again being made,” said Adam Markman, an analyst at research firm Green Street Advisors Inc. in Newport Beach, California. “You can’t assume because billboards have qualified that everything else will as well.”

Iron Mountain, based in Boston, and Redwood City, California-based Equinix disclosed last June that the IRS was scrutinizing their REIT eligibility as the agency considers narrowing the legal definition of real estate.

Companies want to be REITs in part because of the tax advantage and the access to capital enjoyed by property trusts. REITs, whose primary income streams are from real estate, don’t pay federal income taxes. In exchange, they’re required by federal law to distribute at least 90 percent of their taxable earnings to shareholders in the form of dividends.

Lamar fell 1.7 percent to $51.16 in New York. Its shares rose 5.2 percent on April 16, the day CBS announced its IRS ruling. Equinix gained 3.2 percent and Iron Mountain climbed 3.8 percent the same day.

A crack is starting to form in the foundation of the U.S. housing-market recovery that extends beyond bad winter weather.

“A rise in interest rates, combined with the rise in home prices, has quickly and surprisingly made a lot of markets unaffordable for home buyers,” said Daren Blomquist, vice president at property-data firm RealtyTrac Inc. in Irvine, California.

Sales of new homes slumped 14.5 percent to a 384,000 annualized pace, the weakest since July, Commerce Department data showed today in Washington. Purchases fell in three of four regions, including a 16.7 percent decline in the West to the lowest level since January 2012.

The data are better examined using a three-month average, which stood at a 434,000 rate in March. While down from 446,000 at the end of 2013, home sales are still higher than the average 388,000 in the third quarter.

Lower limits on loans guaranteed by the Federal Housing Administration, a plunge in distressed sales and price gains that have outstripped the rest of the country have all had outsized impact on the decrease in the West, Ted Wieseman, an economist at Morgan Stanley in New York, said in a research note.

An increase in borrowing costs in the second half of last year still may be holding back purchases. The average 30-year, fixed-rate mortgage was at 4.27 percent in the week ended April 17, up from 3.35 percent in May of 2013, according to data from Freddie Mac in McLean, Virginia.

Higher property values are also deterring some would-be buyers. The median sales price of a new house rose 12.6 percent from March 2013 to a record $290,000, today’s report showed.

Sales in the West are little changed from the end of 2011 at the same time prices have soared 28 percent in that region.

The housing recovery in the U.S. is running out of steam as buyers balk at record prices and higher mortgage rates that are making properties less affordable.

Sales dropped a surprising 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, Commerce Department data showed today in Washington. Three of the four regions saw setbacks, with demand in the West slumping to the lowest level in more than two years.

More expensive properties, borrowing costs that have jumped almost a percentage point from last year and lenders unwilling to go out on a limb are challenging an industry still emerging from its worst slump since the Great Depression. In time, the slowly mending job market will help revive demand at builders such as NVR Inc. (NVR)

“It’s the reduction in affordability, the lack of inventory, also weak growth in median household income -- all these are contributing to the sluggish recovery in housing,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who forecast sales would drop in March. “It’s going to raise concerns about the strength of the housing recovery, but it’s too early to be too worried.”

Euro Area

The news was better in Europe as data showed services and manufacturing in the euro area expanded faster than economists forecast in April, indicating the economy continued to strengthen at the start of the second quarter.

The median forecast of 74 economists surveyed by Bloomberg called for the pace of U.S. new-home sales to accelerate to 450,000. Estimates (NHSLTOT) ranged from 428,000 to 476,000. The Commerce Department revised February’s reading to a 449,000 rate from a previously estimated 440,000.

The last time sales were this low or dropped as much in one month was July, when interest rates on U.S. 10-year notes rose more than a percentage point from May after Federal Reserve policy makers indicated they would begin trimming asset purchases.

The median sales price of a new house climbed 12.6 percent from March 2013 to $290,000, the highest in data going back to 1963, today’s Commerce Department report showed.

Changing Mix

More higher-priced properties are selling while first-time buyers and lower-income Americans struggle to get into the market. The decrease in sales was concentrated in houses priced less than $300,000, while more expensive dwellings showed gains, today’s report showed.

“The first-time homebuyer is not participating, nor are other buyers of modest means,” said David Crowe, chief economist for the National Association of Homebuilders in Washington. “We’ve lost a segment of our homebuyers because of tight credit.”

The average rate on a 30-year, fixed mortgage was 4.27 percent in the week ended April 17. A year ago, the rate averaged 3.41 percent, according to Freddie Mac in McLean, Virginia.

“Prices are rising, mortgage rates are higher, and that makes it considerably more expensive to buy than it was a year ago,” said Jed Kolko, chief economist for Trulia Inc., a San Francisco-based real estate information service. “Affordability is definitely a concern.”

Falling Orders

NVR, a homebuilder based in Reston, Virginia, this week reported a 5 percent drop in new orders in the January-through-March period from a year earlier, which contributed to a 32 percent plunge in net income. Meritage Homes Corp. (MTH) posted a 1 percent decline in orders from the first quarter of 2013, driven by weakness in the West.

“We are projecting that our 2014 home closing gross margin may be relatively flat compared to 2013, due to less pricing power and higher land costs,” Steven Hilton, chairman and chief executive officer of Scottsdale, Arizona-based Meritage, said in a statement today.

Last month’s slump in U.S. home demand was led by a 21.5 percent drop in the Midwest, the biggest decrease for that region since September 2012, today’s figures showed. The West fell 16.7 percent to an 80,000 annualized rate, the weakest pace since January 2012. Only the Northeast reported a gain, which may reflect a bounce back from harsh winter weather in the first two months of the year.

Timelier Gauge

New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

The pace of residential construction was held back last month even in warmer parts of the country that weren’t hit with snow and frigid temperatures. Housing starts climbed 2.8 percent to a 946,000 annualized rate following February’s 920,000 pace, the Commerce Department reported last week. Permits for future projects declined.

Sales of existing homes fell in March for a third consecutive month as rising prices and a lack of inventory discouraged would-be buyers. Closings on previously owned properties, which usually occur a month or two after a contract is signed, fell 0.2 percent to a 4.59 million annual rate, the lowest level since July 2012, the National Association of Realtors reported yesterday. Purchases were down 8.5 percent compared with the same month last year.

Employment Gains

The labor market has shown signs of shaking off its winter slump, which probably will help the housing market right itself in due time. Employers added 192,000 workers to payrolls last month after a revised 197,000 gain in February that was larger than initially estimated, according to Labor Department data.

“You don’t get a job one day and buy a home the next,” said Trulia’s Kolko. “It takes years to save for a down payment, build up an income history to qualify for a mortgage. Buying a home and getting a mortgage is making a bet that you’ll be able to keep paying for that mortgage. And you need to feel secure in your job and your income to make that decision.”

Ehud Barak, the former Israeli prime minister, doubled his money when he sold an apartment in north Tel Aviv’s Akirov Towers that he’d bought in 2003 for about 12 million shekels ($3.5 million).

Barak, 72, said in an interview that he used the profit to purchase a smaller home in the nearby Assuta luxury complex, and five apartments in the planned Icon TLV project close to city hall that he’ll rent out.

Israel’s surging home values, driven by record mortgage lending, are good for long-term owners like Barak. First-time buyers are stretching their finances to the point that the Bank of Israel warned against taking on too much risk. Rising prices and efforts by the government and central bank to cool the market failed to deter Israeli homebuyers taking advantage of the lowest borrowing rates since 2009.

“There is a mentality in Israel that everybody needs to buy their own home and people get a lot of help from their families,” said Tzvi Shapiro, general manager of First Israel Mortgage brokerage in Jerusalem.

About two-thirds of Israelis own their homes, according to the Central Bureau of Statistics. That’s about the same as the U.K. and is also the average for the countries that use the euro, Eurostat estimates.

The challenge for new buyers is particularly acute in Tel Aviv, where locals compete with cash-rich foreign investors, like they do in cities such as New York and London. As homebuyers pour in, a shortage of development land and a cumbersome planning process create a squeeze that is helping to stoke price increases in the city of 400,000 people.

Manhattan Logic

“It’s the same logic that drives prices up in Manhattan,” said Yigal Zemah, who manages billionaire Nicolas Berggruen’s real estate business in Israel. “There’s no more space to buy, everything has to be demolished and the only way to build is up.”

Low mortgage rates have fueled the surge in purchases. The average rate stood at 2.34 percent at the end of March compared with 2.91 percent two years ago, data from the central bank show. The Bank of Israel reduced its benchmark interest rate to 0.75 percent from 1 percent in February and maintained the level in March. That’s down from 2.5 percent two years earlier.

Growing unemployment “causes much greater harm than what is happening in the housing market,” Bank of Israel policy maker Rafi Melnick said in an interview with Army Radio, discussing the decision to cut the rate in February.

Efforts to cool the market have focused on tightening lending availability. The Bank of Israel capped home loans to first-time buyers at 75 percent including mortgage insurance in 2012, when it was headed by Federal Reserve vice chairman nominee Stanley Fischer. Prior to that, borrowers could get as much as 95 percent of the value by combining mortgages and insurance.

Borrower Beware

The change resulted in more homebuyers taking unsecured loans to cover their down payments, leading to the Bank of Israel’s warning this month about risky borrowing.

Buyers should think carefully about how they’re going to make payments for years to come and not be tempted to take mortgages they can’t afford, the bank said on April 8. A recession similar to the one experienced by Israel in 2002 would mean that 23,000 borrowers would have trouble repaying their mortgages, Bank of Israel commercial banking supervisor David Zaken said at a conference in Tel Aviv the same day.

The average selling price for a Tel Aviv home rose to 1.75 million shekels last year from 1.63 million shekels in 2012, according to the Israel Tax Authority. In the city’s seven most desirable neighborhoods, the average was 2.7 million shekels, said Matthew Bortnick, a consultant at The Maki Group brokerage in Tel Aviv. Israeli housing prices overall jumped 80 percent between 2007 and 2013, according to the statistics bureau.

IMF Warning

The median price of Manhattan apartments climbed 19 percent in the first quarter from a year earlier to $972,428, according to an April 1 report from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

The International Monetary Fund in February said that Israeli home prices were 25 percent above a sustainable level and that there was a 20 percent chance of a housing bust that could spark a recession. A committee including Prime Minister Benjamin Netanyahu in March approved proposals to exempt first-time buyers from value-added tax and cap new home prices, steps that could attract even more people to the market. The prime minister on March 8 said the government’s efforts to bring down prices have been insufficient.

Slow Moving

A slow moving planning process has prevented developers and authorities from cooling prices by increasing supply. In Israel, it takes an average of 13 years from the initial planning stages to delivering the keys of a finished apartment to the buyer, said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc, citing government statistics.

The supply of affordable housing has tightened because much of the development taking place in Tel Aviv is focused on luxury apartments. The Tel Aviv Estate Index of the 15 real estate stocks with the highest market value fell 0.2 percent today. It’s risen 3.7 percent this year.

Architect Richard Meier’s glass-fronted tower looms over the city’s skyline, trussed with construction cranes. At the top is a 15,000 square-foot (1,390 square-meter) duplex apartment above the fashionable Rothschild Boulevard that features sea views, seven bedrooms, a home theater, a private gym and a swimming pool, according to Zemah, who supervises the project as chief executive officer of Berggruen Residential in Israel. The asking price is $50 million, a record for the country. Two penthouse sales exceeded $40 million, according to the report by Miller Samuel and Douglas Elliman.

Emotional Link

“These penthouses are for people who don’t really need a place to live because they already have another residence, or several,” Zemah said, shuffling through construction debris in the tower 600 feet above the street. “For many Jews, Israel is an emotional thing, but it’s also proven to be an excellent investment.”

Investors from China, Russia and South America are driving up prices in cities where real estate is considered a safe investment, said Jeffrey E. Levine, chairman of New York-based Levine Builders and president of the Jewish National Fund. In Israel, the foreign buyers are mostly Jews from countries such as Russia, France and South Africa, attracted by their cultural ties to the country.

Value Increases

“With the rise of anti-semitism around the world, many Jews are expressing a desire to have a place in Israel in case things get worse at home,” said Levine, who is building The Edge and 1 North 4th Place developments in Brooklyn’s Williamsburg neighborhood.

Demand keeps building for Tel Aviv real estate in spite of Israel’s reputation as a powder keg at the center of Middle East conflicts and international efforts to boycott its exports because of its military occupation of the West Bank, where Palestinians hope to establish an independent state.

“Property values keep going up because Tel Aviv is a great city to live in,” former Prime Minister Barak said in the interview at the G-Tower, where he rents an apartment while awaiting Assuta’s completion in 2016.

Tel Aviv’s vibrant nightlife also attracts buyers and holidaymakers. Mayor Ron Huldai has cultivated a reputation for tolerance that led to the city being named the most gay-friendly travel destination of 2011 in a poll by gaycities.com.

Open City

“It’s a 24-hour open city and people love it,” said Shira Dunsky, a broker at Sotheby’s International Realty in Tel Aviv. “They either want to move here or vacation here. Many come every three months or so to visit their apartment.”

Competing with the jet-setters is a local population facing economic headwinds. Israel’s $273 billion economy has been hurt by an appreciating shekel and diminished demand for its exports. Gross domestic product grew 3.3 percent in 2013, the least since 2009, and the Bank of Israel last month reduced its 2014 forecast to 3.1 percent. Exports, accounting for one-third of the economy, rose 0.7 percent in 2013, down from 0.9 percent.

Escalating housing costs led to a summer of protests in 2011 that drew as many as 400,000 people to the streets. Hundreds pitched tents on Rothschild Boulevard for months to demonstrate their inability to make ends meet. Israel has the highest poverty rate among the Organization for Economic Cooperation and Development’s 34 countries and has the fifth-widest gap between rich and poor.

Enthusiastic Buyers

So far, the hazards of property investing haven’t damped Israelis’ enthusiasm for taking out more and bigger home loans. Mortgage lending has more than doubled over the past 10 years as prices have risen and more properties change hands, Shapiro said. In March, home loans climbed to a record 4.5 billion shekels, Bank of Israel’s Zaken said.

“We have all these first-time homebuyers who are tying their money up for 20 to 30 years in mortgages they can barely afford,” said Alex Zabezhinsky, chief economist at Tel Aviv-based Meitav DS Investment House Ltd. “That cuts significantly into their spending power and it’s a big weight on economic growth.”